Shares, Performance Targets in Avid China Partnership

Avid (Nasdaq: AVID) has announced that it has entered into a ‘go-to-market’ commercial partnership for the Greater China market with Beijing Jetsen Technology Co. Ltd (Jetsen), a long-time channel partner of Avid in China. The alliance will expand Avid’s presence in the strategically important Greater China market, and offer the company a strong platform to accelerate growth of its cloud-enabled Avid Everywhere platform and solution suites.

Founded in 2006 and headquartered in Beijing, China, Beijing Jetsen Technology designs, develops and implements integrated audio and video solutions to the radio, film, television, defence, research, government and education industries. It provides media asset management systems, information security systems, non-linear editing systems, integrated network solutions, and station monitoring and surveillance solutions. It is the No. 1 new media content IP trading provider and one of the biggest film and TV content production companies in China. Its businesses include creative investment in film and television production, TV show production, digital content distribution, media services, advertising, etc. It has over 1400 employees and is listed on the Shenzhen Stock Exchange (stock code 300182).

The agreement makes Jetsen the exclusive (master) distributor in Greater China of Avid’s comprehensive tools and workflow solutions for creating, distributing and optimizing media. As part of the exclusive distributor agreement, Avid receives minimum annual performance guarantees for Greater China, delivering double-digit (15%) annual growth for Greater China in both revenues and cash, and represents a total contract value of greater than US$75 million for the initial three years. Under the agreement, Jetsen will take over responsibility for Avid’s operations in the Greater China region. All existing reseller agreements with current channel partners of Avid in Greater China will also be transferred to Jetsen, and these partners will be able to continue to represent the Avid portfolio as they do today, but will purchase directly from Jetsen going forward.

Jetsen will distribute all Avid products and solutions in Greater China, including mainland China, Hong Kong, Macau and Taiwan, continuing to work closely and directly with Avid’s existing reseller network in the region. Supporting Avid’s strategies for the Greater China market, the agreement with Jetsen enables Avid to deliver on its commitment to providing its client community the most flexible deployment models, licensing options and commercial structures with future cloud and enterprise offerings for the region, as well as more localised and tailored solutions.

As part of the arrangement, Jetsen will also invest $18.1 million in Avid in a private placement transaction in return for a minority stake in the company of between 5.0% and 9.9%, which is dependent on the company’s share price performance leading up to the closing of the investment. A Jetsen representative will also take on the position of “Observer” on the Avid Board. The investment by Jetsen in Avid is subject to customary closing conditions, including regulatory approvals.

According to Avid’s Chairman and Chief Executive Officer, Louis Hernandez Jr. (pictured), “The agreement guarantees long-term growth, through minimum bookings in cash. It’s 15 percent annual growth, and a total contract value of over USD$75 million dollars, for the first three years of what is a five-year agreement. We also believe we’ll be realising operating cost savings of about $3 million dollars, as a result of the partnership agreement. Jetsen will provide us with broad market access, and an important entry point for the cloud, and this is one of the most exciting things about it

“Jetsen is a leading provider of tech solutions for most of the major media companies in the Greater China area. They also have – have made a significant investment in their cloud capabilities, that not only will they be able to offer the Avid Everywhere suite and platform, but they’ll also be able to help us accelerate our deployment into the cloud.

“We’re also receiving an $18.1-million equity investment from Jetsen, which is structured to the limit dilution. The contribution to a more stable and clear financial expression is completely in line with what we have signalled as the end of the transformation by Q217.

“So, the timing of this arrangement fits perfectly with the transition we’re looking to make – away from the transformation, into an acceleration of growth. The Jetsen relationship – both with the cloud and Avid Everywhere platform and a high-growth market like Greater China, I think, perfectly fits this transformation, to allow us to move into the growth phase.”

The culmination of years of cooperation, Hernandez says the Jetsen/Avid agreement is similar to those the Chinese company has entered into with companies in other market verticals.

“For years, Jetsen has been a committed partner to Avid and been a leading reseller of our products and solutions<” says the Avid CEO. “Now, they’re very familiar with the Avid Everywhere strategy and, of course, the transformation we’ve been going through. They’ve been monitoring us very closely, having been a long-term partner. They have attended every Avid Connect event since our inception, so they’ve really been closely following how we’ve been executing our vision. And, like us, I think they’ve become convinced that Avid Everywhere is the future of media.

“They’ve seen the penetration that we’ve had in large media organisations, they’ve seen a couple of products in the cloud and the update there. And, I think they’ve become convinced, this is the way things are going to operate going forward.

“They’ve partnered with, and invested in, companies in adjacent markets, that have improved their strategic position and supported their growth. So, they’ve been successful with a model very much like the one we have announced. And, for that reason, we became very comfortable with the structure being pursued, in the agreement that we have signed.”

As part of the deal, Jetsen will assume responsibility for sales, marketing, delivery and support activities in the region. Many of the Avid employees responsible for these functions will transfer to Jetsen, resulting in approximately $3 million of annualised cost savings for Avid.

“We’re optimistic this will lead to profitable growth and a meaningful increase in the profit contributed by the Greater China market,” says Brian Agle, Avid’s Senior Vice President and Chief Financial Officer. “In addition to the guarantee of bookings growth and cost savings, the relationship is expected to put Avid in the best possible position to quickly and efficiently launch new products – and, in particular, accelerate the growth of our new cloud offering in Greater China.

“We are pleased that they have made such a strong commitment to this vision and we look forward to having them be both a financial partner and a strategic partner.”

Jetsen’s $18.1 million investment is structured so that the number of shares issued – and the amount of dilution – are determined based on Avid’s stock price at a future date – the trailing 30-day volume weighted average stock price at the time of closing – which Avid expects to occur by the end of Q2 of 2017.

According to Brian Agle, “The stock price driving the number of shares issued will be subject to a collar such that the number of shares issued will not exceed 9.9% or be less than 5% of pro forma shares outstanding, after the issuance. As part of Jetsen’s investments, they will hold one non-voting observer seat on the Board of Directors. This will become effective when the investment closes.”

“You can see that we’re pretty excited about the relationship,” adds Louis Hernandez, Jr. “Think about the China market for a second. The media technology market is huge and is growing rapidly – as almost every piece of research shows. The digitisation of the overall media value chain – which is happening across the world – is accelerating technology standards, specifically in China and that region. As they’re leapfrogging many of the older technologies and they’re just adopting the newer technologies, much like we’re offering, when you combine that with the overall economic strength in that region, it makes it very attractive.

“However, as most of you know, the regulatory environment has made the market increasingly complex, particularly for Western companies – and we don’t feel that that’s going to improve any time soon.

“In order to effectively compete, as you guys have seen, there’s a lot of companies like Microsoft or IBM, Amazon, even Google – have partnered with local companies to offer and operate their cloud businesses in China. Our partnership with Jetsen fits with this successful model. A strong, local partner with incredible access to customers, great cloud capabilities – remember, they have their own cloud services that they offer directly. This’ll be able to sit right on top of their capabilities. They have a long history and knowledge with Avid – which makes them very unique – and they’re – have a deep commitment to the Avid Everywhere cloud strategy, which they have seen after careful evaluation.”